Umpqua Reports First Quarter 2021 Results

PORTLAND, Ore., April 21, 2021 /PRNewswire/ --

CEO Commentary
"Through strategic growth, expense management, and capital allocation, we're committed to improving value for our shareholders over time. Umpqua's reported earnings of $0.49 per share last quarter reflect the relevance of the company's unique value proposition and customer acquisition efforts, and we're optimistic about future loan growth as our markets reopen. We're focused on continuing to execute on our talent acquisition and other growth priorities, including key Human Digital initiatives that are an important point of differentiation and customer-engagement across digital channels."
–            Cort O'Haver, President and CEO of Umpqua Holdings Corporation

Segment Disclosures
Segment disclosures have been included on pages 15 and 16 of this press release to provide additional detail on the Company's two operating segments: Core Banking and Mortgage Banking.

The Core Banking segment includes all lines of business, except Mortgage Banking, including wholesale, retail, wealth management, as well as the operations, technology, and administrative functions of the Bank and Holding Company.  The Mortgage Banking segment includes the revenue earned from the production and sale of residential real estate loans, the servicing income from our serviced loan portfolio, the quarterly changes to the mortgage servicing rights (MSR) asset, and the specific expenses that are related to mortgage banking activities including variable commission expenses.  Revenue and related expenses related to residential real estate loans held for investment are included in the Core Banking segment as portfolio loans are an anchor product for our consumer channels and are originated through a variety of channels throughout the Company.

Balance Sheet
Total consolidated assets were $30.0 billion as of March 31, 2021, compared to $29.2 billion as of December 31, 2020 and $27.5 billion as of March 31, 2020.  Including secured off-balance sheet lines of credit, total available liquidity was $14.2 billion as of March 31, 2021, representing 47% of total assets and 55% of total deposits.

Gross loans and leases were $22.2 billion as of March 31, 2021, an increase of $381.5 million relative to December 31, 2020.  The increase in gross loans and leases is primarily due to an increase of commercial real estate balances during the quarter of $92.2 million and an increase in net PPP loan balances of $297.6 million.  The change in net PPP loan balances during the quarter was the result of an increase in round two PPP net loan balances of $659.2 million, offset by a decrease in PPP round one net loan balances of $361.6 million.  Please refer to the additional loan tables in the Q1 2021 Earnings Presentation for select underwriting characteristics of the loan portfolio and specific industry concentrations impacted by COVID-19.

Total deposits were $25.9 billion as of March 31, 2021, an increase of $1.3 billion from $24.6 billion as of December 31, 2020. This increase was primarily attributable to growth in non-interest bearing demand deposits of $867.7 million and growth in money market balances of $380.9 million, partially offset by a decline in time deposits of $373.6 million.

Net Interest Income
Net interest income was $221.4 million for the first quarter of 2021, down $13.5 million from the prior quarter.  The decrease was primarily driven by $9.3 million of lower PPP fees recognized in the quarter compared to the prior period.

The Company's net interest margin was 3.18% for the first quarter of 2021, down 17 basis points from 3.35% for the fourth quarter of 2020 primarily driven by an eleven basis points decrease resulting from lower PPP fees recognized in the quarter.

Credit Quality
The allowance for credit losses was $331.0 million, or 1.49% of loans and leases, as of March 31, 2021, which was down from $348.7 million, or 1.60% of loans and leases, as of December 31, 2020.  The provision for credit losses decreased by $0.03 million from the prior quarter level primarily due to offsetting changes in loan portfolio mix and improvement in economic forecasts used in the credit models.

Net charge-offs as a percentage of average loans and leases decreased by two basis points to 0.33% of average loans and leases (annualized) as of December 31, 2020.  The decrease in net charge-offs for the quarter was primarily due to continued stable credit performance of the loan portfolio. As of March 31, 2021, non-performing assets were 0.19% of total assets, compared to 0.24% as of December 31, 2020 and 0.32% as of March 31, 2020.

Current Expected Credit Loss (CECL)
On January 1, 2020, we adopted Accounting Standards Update No. 2016-13, Financial Instruments —Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("CECL").  In applying CECL, we use credit models that factor in economic forecasts to project life of loan performance.  At the beginning of the COVID-19 pandemic, economic forecasts projected significant, negative COVID-19 related impacts to the economy; therefore we recorded significant provisions for credit losses in the first and second quarters of 2020. As those future economic forecasts have stabilized as well as incorporating loan mix changes, we recorded a recapture of $0.34 million of the allowance for credit losses in the third quarter of 2020, a $0.03 million provision for credit losses in the fourth of 2020, and no provision for credit losses in the current period.

Non-interest Income
Non-interest income was $108.8 million for the first quarter of 2021, down $15.2 million from the prior quarter driven primarily by a decrease in net mortgage banking revenue of $14.0 million.

Revenue from the origination and sale of residential mortgages was $62.5 million for the first quarter of 2021, a decrease of $20.9 million from the prior quarter. This decrease reflects a sequential quarter decrease of $133.9 million or 8% in for-sale mortgage origination volume and a decrease of 89 basis points in the home lending gain on sale margin to 3.82% for the first quarter of 2021. Of the current quarter's mortgage production, 37% related to purchase activity, compared to 48% for the prior quarter and 43% for the same period of the prior year.

Non-interest Expense
Non-interest expense was $187.6 million for the first quarter of 2021, down $23.7 million from the prior quarter level. This decrease was primarily due to a decrease in salaries and benefits expenses of $8.3 million, a decrease in occupancy and equipment expenses of $7.1 million, and decreases in other expenses of $7.7 million.

Capital
As of March 31, 2021, the Company's tangible book value per common share¹ was $12.10, compared to $12.21 in the prior quarter and $11.30 in the same period of the prior year.  The decrease in tangible book value per share is attributable to increases in the fair value of trust preferred securities and a decrease in the unrealized gain of investment portfolio securities during the quarter.

The Company's estimated total risk-based capital ratio was 15.9% and its estimated Tier 1 common to risk weighted assets ratio was 12.6% as of March 31, 2021. The Company remains above current "well-capitalized" regulatory minimums.  The regulatory capital ratios as of March 31, 2021 are estimates, pending completion and filing of the Company's regulatory reports.

Non-GAAP Financial Measures
In addition to results presented in accordance with generally accepted accounting principles in the United States of America (GAAP), this press release contains certain non-GAAP financial measures.  The Company believes that these non-GAAP financial measures provide investors with information useful in understanding the Company's financial performance; however, readers of this document are urged to review these non-GAAP financial measures in conjunction with the GAAP results as reported.

Management believes tangible common equity and the tangible common equity ratio are useful measures of capital adequacy because they provide a meaningful base for period-to-period and company-to-company comparisons, which management believes will assist investors in assessing the capital of the Company and the ability to absorb potential losses. Tangible common equity is calculated as total shareholders' equity less goodwill and other intangible assets, net (excluding MSRs). Tangible assets are total assets less goodwill and other intangible assets, net (excluding MSRs).  The tangible common equity ratio is calculated as tangible common shareholders' equity divided by tangible assets.

The following table provides reconciliations of ending shareholders' equity (GAAP) to ending tangible common equity (non-GAAP), and ending assets (GAAP) to ending tangible assets (non-GAAP).

About Umpqua Holdings Corporation
Umpqua Holdings Corporation (NASDAQ: UMPQ) is the parent company of Umpqua Bank, an Oregon-based community bank recognized for its entrepreneurial approach, innovative customer experience, and distinctive banking solutions. Umpqua Bank has locations across Oregon, Washington, California, Idaho and Nevada.  Umpqua Holdings Corporation is headquartered in Portland, Oregon. For more information, visit umpquabank.com.

Earnings Conference Call Information
The Company will host its first quarter 2021 earnings conference call on April 22, 2021, at 10:00 a.m. PT (1:00 p.m. ET).  During the call, the Company will provide an update on recent activities and discuss its first quarter 2021 financial results. There will be a live question-and-answer session following the presentation. To join the call, please dial (866) 440-7407 ten minutes prior to the start time and enter conference ID: 7292532.  A re-broadcast will be available approximately two hours after the call by dialing (855) 859-2056 and entering conference ID 7292532. The earnings conference call will also be available as an audio cast, which can be accessed on the Company's investor relations page at https://www.umpquabank.com/investor-relations/.

Forward-Looking Statements
This press release includes forward-looking statements within the meaning of the "Safe-Harbor" provisions of the Private Securities Litigation Reform Act of 1995, which management believes are a benefit to shareholders. These statements are necessarily subject to risk and uncertainty and actual results could differ materially due to various risk factors, including those set forth from time to time in our filings with the SEC. You should not place undue reliance on forward-looking statements and we undertake no obligation to update any such statements.  Forward-looking statements can be identified by words such as "anticipates," "intends," "plans," "seeks," "believes," "estimates," "expects," "target," "projects," "outlook," "forecast," "will," "may," "could," "should," "can" and similar references to future periods. In this press release we make forward-looking statements about strategic and growth initiatives.  Risks that could cause results to differ from forward-looking statements we make are set forth in our filings with the SEC and include, without limitation: current and future economic and market conditions, including the effects of declines in housing and commercial real estate prices, high unemployment rates, and any slowdown in economic growth particularly in the western United States; the effect of the COVID-19 pandemic, including on our credit quality, deferral programs, and business operations, as well as its impact on general economic and financial market conditions; economic forecast variables that are either materially worse or better than end of quarter projections and deterioration in the economy that exceeds current consensus estimates; our ability to effectively manage problem credits; our ability to successfully implement efficiency and operational excellence initiatives; our ability to successfully develop and market new products and technology; and changes in laws or regulations. We also caution that the amount and timing of any future common stock dividends or repurchases will depend on the earnings, cash requirements and financial condition of the Company, market conditions, capital requirements, applicable law and regulations (including federal securities laws and federal banking regulations), and other factors deemed relevant by the Company's Board of Directors, and may be subject to regulatory approval or conditions.